Credit startups and licensees dealing with them need to deal with a complex consumer credit licensing regime.

Should brokers have their own licence or be authorised as credit representatives by a licensee?

Whether a person (whether an individual or company) needs to be appointed as a credit representative depends on whether they are engaging in a “credit activity”. The National Credit Act defines “credit activity” widely in section 6: it includes providing a “credit service”. A person provides a credit service if the person provides credit assistance to a consumer or acts as an intermediary: section 7.

ASIC recently announced that Yellow Brick Road Finance Pty Ltd (YBR) has changed the way it authorises companies and individuals to offer loan advice through branches operated under its Australian credit licence.

YBR had directly authorised over 100 individuals working in YBR branches as credit representatives. ASIC considered that the national credit licensing framework also required YBR to authorise the companies which operate the branches. This was because the companies also act as intermediaries between the licensee and the consumer.

Yellow Brick Road is now in the process of authorising the corporate entities directly under its licence, and those entities can sub-authorise employees or they can be directly appointed under YBR’s credit licence.

A body corporate can be appointed as a credit representative and sub-authorise credit representatives. But a partnership cannot be appointed as a credit representative and cannot sub-authorise credit representatives.

Directors and employees of body corporate credit representatives who engage in credit activities on behalf of a licensee must be authorised, either directly by the licensee or by the body corporate credit representative, as a credit representatives of the licensee.

If a director or employee of a body corporate credit representative is directly appointed as a credit representative by the licensee, the director or employee must individually be a member of an external dispute resolution (EDR) scheme. However, if a body corporate credit representative sub-authorises a director or employee of the body corporate credit representative as a credit representative of the licensee, then the director or employee is not required to maintain their own EDR membership (see section 65 and regulation 16 of the National Consumer Credit Protection Act 2009 (National Credit Act)).

ASIC expects that measures for monitoring and supervision of representatives will include carrying out appropriate background checks before new representatives are appointed.